Recent Posts

T-Pawnomics

by BulliedPulpit on April 18, 2010

The STrib reports that Gov Pawlenty spoke at a conservative anti-tax group in Iowa Saturday. He touched on all the usual anti-tax, anti-spending points that are standard GOP fare these days. In particular, he hit on a favorite idea of his, an “economic bill of rights” that would require the federal budget to be balanced and a super-majority in congress to raise taxes or the debt level. He also spoke of the need to make permanent the entirety of the Bush tax cuts.

I’ll take a close look at these proposals below the fold.A balanced budget amendment is something that Pawlenty has been talking about for a long time. On the face, it seems like a good idea–everyone likes balanced budgets, right? Unfortunately, this would tie the hands of the federal government when it most needs flexibility. One would think that Gov Pawlenty would be able to grasp the problems that face a government’s budget in a recession. Minnesota is grappling (rather badly) with that problem now. I would point out that the US Constitution does not include a provision for unallotment.

I penned a piece for this blog, also published at MinnPost, that touched on these issues. In short, states must balance their budgets, so when revenues plummet due to a recession, they cut spending (and jobs) and raise taxes. This will actually make a recession worse, as consumer demand goes down and private companies need to lay off workers, driving demand down further. If we force the federal government to keep a balanced budget, it would be stripped of the power to stimulate the economy in a recession, whether through tax cuts (the GOP’s preferred solution) or through infrastructure spending and aid to the states. Even the conservative think-tank American Enterprise Institute says that the stimulus worked. Pawlenty’s proposal would strip the government of that ability to fight recessions. It could actually force the government to raise taxes and lay people off in the middle of a recession.

His second proposal, the need for a super-majority to raise taxes or the debt level, defies logic. I can actually provide a one-word rebuttal: California. California’s insane initiative system led to a referendum requiring that the state legislature get a supermajority to raise taxes. California currently has a credit-rating near junk, and there’s no light at the end of the tunnel. You can try to fix it yourself, thanks to the LATimes. There is no way that Congress will stop spending money (on either side of the aisle) and this would rob it of the ability to pay for those new programs. It’s a recipe for fiscal disaster. “Starve the beast” has never worked. If it did, Reagan and Bush would have had balanced budgets, not Clinton.

Finally, he wants to make permanent the Bush tax cuts:

“This administration has got it exactly wrong,” said Pawlenty. “What we should be doing is we should renew the Bush tax cuts, not let them expire. We should not be adding burdens to our economy, we should be reducing them.”

Of course, this is completely at odds with his avowed affection for fiscal responsibility. As this chart shows, the Bush tax cuts will be a major driver of short and medium-term deficits. Tax cuts for the rich are not a very effective form of fiscal stimulus, so any claims based on that are mistaken. The (admittedly left-leaning) Center on Budget and Policy Priorities recommends that the tax cuts for the highest-income earners should expire on schedule, despite the recession.

Pawlenty’s “policy chops” are largely talking points, not serious policy proposals. Enacting them would be bad for the economy AND the national debt. At the end of the day, his fiscal responsibility should be belied by the deficits that he is leaving to his successor. The Southwest Journal reports that the primarily Pawlenty-led state government has increased spending 53% since 2001. (The article is not online yet.) Pawlenty’s brand of fiscal conservatism is only marginally more responsible that George W Bush’s disastrous brand.